KQ sees Sh4bn revenue loss after West Africa flights ban

National flag carrier Kenya Airways could lose up to Sh4.2 billion in revenues this fiscal year following its decision to suspend flights to Ebola-stricken West Africa, the management said.

The airline, which is listed at the Nairobi Securities Exchange (NSE), estimates that it will lose at least four per cent of its annual revenues if the deadly haemorrhagic fever continues its rampage in Liberia, Sierra Leone and Guinea till end of the financial year in March 2015.

“We estimate a reduction in revenue equivalent to four per cent of our annualised turnover as a result of suspension of flights to Sierra Leone and Liberia,” said Mbuvi Ngunze, KQ’s incoming chief executive officer.

The fall in revenue is linked to missed sales to destinations in the three West African nations where the airline stopped flying in August as the Ebola epidemic picked pace.

The dip in revenue is also expected to delay the company’s return to profitability, having posted two successive losses of Sh3.3 billion last year and Sh7.8 billion in 2013.

This week marks seven months since the World Health Organisation (WHO) issued an Ebola alert following an outbreak in West Africa that has been described as the worst in human history.

Ebola – a haemorrhagic fever with a fatality rate of up to 90 per cent – has so far claimed 4,447 lives mostly in West Africa, with deaths also reported in the US, Spain and Germany.

READ: West Africa flight ban leaves Kenya Airways in a fix

KQ’s flight into the Ebola headwinds comes at a time when the company is grappling with reduced tourist arrivals in the wake of security concerns and rising operational expenses such as wages, fuel and financing costs.

“What is happening at the moment is one of the many unfortunate risks that are typical of the airline industry,” said Mr Ngunze in an interview.

KQ joined other carriers, including British Airways, Emirates, Togo’s ASKY Airlines and Arik Air of Nigeria in suspending flights to West African destinations in the three worst-affected countries. Ethiopian Airlines – KQ’s biggest competitor in Africa – said it does not fly to destinations in Liberia, Sierra Leone and Guinea. South African Airways, the continent's largest airline, continues to fly to Nigeria, the only one of its West Africa destinations that has reported Ebola cases.

The World Bank last week said the Ebola scourge would see West Africa’s GDP take a $2.2 billion (Sh196 billion) hit and continued spread of the disease may result in a $32.6 billion (Sh3 billion) loss to West Africa over the next couple of years.

“With a large expansion of the outbreak, and Ebola spreading to other countries in the region, children would lose providers, households would suffer income losses, businesses lose workers to death, illness, and fear, and industries like mining and agriculture would slow down significantly,” said David Evans, a senior economist at the World Bank.

The revelation by KQ came as the United Kingdom began Ebola screening for all passengers landing at London’s Heathrow Airport.

The US is also screening all airline passengers arriving from West Africa for Ebola at five international airports, including New York's John F. Kennedy International Airport.

KQ flies 44 times a week to 10 West African cities, comprising a quarter of the airline’s 38 destinations on the continent. The airline has at least seven flights to Liberia and Sierra Leone per week, comprising at least 16 per cent of its West African flights.

KQ was hesitant to abandon the lucrative West African destinations but finally had to bow to government pressure and suspend flights effective August 19.

READ: Kenya in list of 19 countries at risk from Ebola epidemic

The airline earned about Sh55.1 billion or 52 per cent of last year’s total revenue from African operations — excluding Kenya.

West Africa’s contribution to the total Africa revenue is significant because the region accounts for more than a quarter of the continent’s destinations. KQ has also denied reports that the airline was considering scaling down its Asian routes as a result of suspended flights to West Africa that have significantly reduced its passenger traffic.

“We are still flying to all destinations and frequencies on our Asia routes. The reduction of capacity on these routes does not mean that the management is scaling down on its global expansion ambitions,” KQ said in a statement.

Mr Mbuvi said KQ does not consider laying off staff who have been rendered redundant as a result of the Ebola flight suspensions.

“There are no plans to reduce the size of our workforce at the moment,” he said. This means KQ will continue footing the wage bill for pilots and cabin crew who are currently not working because their flights have been suspended.

President Uhuru Kenyatta in September told the UN General Assembly in New York that KQ would resume flights to countries affected by the Ebola virus disease “once appropriate measures are put in place”.

However, he did not specify the steps that would be taken for the suspended flights to be restored. The KQ stock has in the past month hit an all-time low of Sh8.30 per share as investors digest the effects of Ebola, high fuel costs, a dip in passenger numbers on some routes due to Kenya’s security concerns and stiff competition in the market.

It closed on Tuesday at Sh8.95 having shed a third of its value in the last six months.